Cash

Proper capitalization is critical to a business’ success. Most small businesses were started with an idea, a commitment and a credit card. If they survived and prospered they created profit and cash flow but often lacked a capitalization strategy.
Capitalization is the combination of both equity and debt. Equity is acquired through either external or internal investment. Does your company have a strategy for the accumulation of equity? Probably not. The most obvious method of increasing equity is through cash retention. Some percentage of all cash intake needs to be retained—this is the purchase of an asset—the purchase of cash. Cash is just like any other asset—you have to buy it—and it is one of your most valuable assets. Despite its’ value many business owners fail to purchase (retain) cash. It won’t happen by itself. You need a strategy for cash retention if you expect to build a strong, secure business.
Credit is also an important component of capitalization. Banks will not lend you money when you need it—they lend you money when you don’t—therefore you need to actively seek credit when you don’t need it. You should also diversify your credit. Utilize multiple lenders. In today’s environment with institutions combine and your “personal relationship” with your banker is a thing of the past. Just like over-reliance upon a single customer or vendor is a red flag so is your over-reliance upon a lender. Don’t be held hostage.
How much and what combination of debt, cash and other assets should you have? Make this a topic of your on-going planning.